When is the Remedy of Rescission Available in Nevada?

Rescission returns both parties to their pre-contractual situation.[1]  Rescission is a remedy which allows the “harmed” party, either through unilateral action, or through the institution of a suit in equity, to abrogate or cancel the contract totally, and returns the parties to the position they held prior to the execution of the contract.[2]  “A priori, where there has been a valid rescission of the contract, there is no longer any contract and, therefore, no longer a cause of action for breach.”[3]  (emphasis added.)

Since rescission voids a contract ab initio, a claim for damages, which must insist upon the existence of the contract, must be barred.[4]  Restitution is a form of rescission.[5]  Rescission has two aspects: (1) cancellation of a contract of sale; and (2) restitution of the purchase price.[6]  Restitution is an appropriate remedy where a contract has been rescinded.[7]  The Nevada Supreme Court has unequivocally declared that restitution (rescission) and damages are inconsistent remedies, and that election of one is a bar to the other.[8]

[1] Bergstrom v. Est. of DeVoe, 854 P.2d 860, 861-62 (1993) (Court held that one cannot gain both the benefits of a rescission of a contract and award for damages for breach of that contract).

[2] Great am. Ins. Co. v. Gen. Builders, Inc., 113 Nev. 346, 934 P.2d 257, 262, n.6 (1997).

[3] Id.

[4] Bergstrom v. DeVoe, 109 Nev. 575, 577, 854 P.2d 860, 862 (1993).

[5] Reed v. Sixth Jud. Dist. Ct., 75 Nev. 338, 34, 341 P.2d 100, 101 (1959)

[6] Dan B. Dobbs, Law of Remedies, 552 (2d. Ed. 1993)

[7] Id.

[8] Mullinix, 81 Nev. At 454; See also Norris, 225 P.2d at 268; SJS Inv., 597 N.E.2d at 1215; Timmons, 601 S.W.2d at 689; Loflin v. Blume, 1198 WL 132679 (Tenn. Ct. App. 1998); In re Zimmermann v. Thompson, 114 N.W.2d 116, 117 (Wis. 1962); Mansfield v. Smith, 277 N.W.2d 740, 748 (Wis. 1979).

Disqualification of an Attorney to Prevent Disclosure of Confidential Information

The Nevada Rules of Professional Conduct generally govern the issue of attorney disqualification.[1]  In United States v. Walker River Irrigation Dist., the court recited the standards applied in considering attorney disqualification motions.  The court correctly suggests:

Disqualification is a “drastic measure which courts should hesitate to impose except when absolutely necessary[,]” Freeman v. Chicago Musical Instrument Co., 689 F.2d 715, 721-22 (7th Cir. 1982), because it takes away one party’s ability to choose his own representation, and it is often a tactic used to create delay or harassment, Miller v. Alagna, 138 F.Supp.2d 1252, 1258-59 (C.D. Cal. 2000). Motions to disqualify are therefore subject to strict judicial scrutiny, Optyl Eyewear Fashion Intern. Corp. v. Style Companies, Ltd., 760 F.2d 1045, 1050 (9th Cir. 1985), and courts have wide discretion in their rulings to further the interests of fairness to all parties, Int’l Bus. Mach. Corp. v. Levin, 579 F.2d 271,279 (3d Cir. 1978).[2]

Tribunals “have broad discretion in determining whether disqualification is required in a particular case.”[3] However, in deciding disqualification based on possible disclosure of confidential information obtained from a former client, a court must: (1) make a factual determination concerning the scope of the former representation; (2) evaluate whether it is reasonable to infer that the confidential information allegedly given would have been given to a lawyer representing a client in those matters; and (3) determine whether that information is relevant to the issues raised in the present litigation.[4]

The court must make a Robbins v. Gillock, “realistic appraisal of whether confidences might have been disclosed that will be harmful to the client in the latter matter”.[5]   The court must make a factual finding regarding what actually happened.[6]

Rule 1.9(a) of the Nevada Rules of Professional Conduct provides that a lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which the person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing. The party seeking disqualification must establish three elements under Rule 1.9(a): (1) that it had an attorney-client relationship with the lawyer, (2) that the former matter and the current matter are substantially related, and (3) that the current representation is adverse to the party seeking disqualification.[7]

Under Nevada law, mere similarity or superficial resemblance between prior and present representation (even had there been a representation) is insufficient to justify disqualification of an attorney; rather, the focus is properly on the precise relationship between the present and former representation.[8]  Further, the burden of proving that two matters are the same or substantially related falls upon the movant.[9]

[1] See In re County of Los Angeles, 223 F. 3d 990, 995 (9th Cir. 2000); United States v. Walker River Irrigation Dist., Not Reported in F.Supp.2d, 2006 WL 618823 (D. Nev. 2006); In-N-Out Burger v. In & Out Tire & Auto, Inc., 2008 WL 2937294 (D. Nev. 2008).

[2] U.S. v. Walker River Irrigation Disk, 2006 WL 618823, *3 (emphasis added).

[3] Brown v. Eighth Judicial Dist. Court ex rel. County of Clark, 116 Nev. 1200, 1205, 14 P.3d 1266, 1269 (Nev. 2000) (citing Robbins v. Gillock, 109 Nev. 1015, 1018, 862 P.2d 1195, 1197 (1993)).

[4] Waid v. Eighth Jud. Dist. Ct., 119 P.3d 1219, 121 Nev. 605 (2005); Coles v. Arizona Charlie’s, 973 F. Supp. 971 (1997).

[5] 109 Nev. 1015, 862 P.2d 1195 (1993).

[6] Waid v. Eighth Jud. Dist. Ct., 119 P.3d 1219, 121 Nev. 605 (2005); Coles v. Arizona Charlie’s, 973 F. Supp. 971 (1997).

[7] Nevada Yellow Cab Corp. v. Eighth Judicial Dist. Court ex rel. County of Clark., 123 Nev. 44, 50, 152 P.3d 737 (2007).

[8] Waid, 119 P.3d 1219, 121 Nev. 605 (2005); Coles v. Arizona Charlie’s, 973 F. Supp. 971 (1997).

[9] Coles, 973 F.Supp. 971.

Are Nevada Common Law Trade Secret Claims “Displaced” by the Uniform Trade Secret Act?

A majority of courts have held that all common law claims which might otherwise be made against an employee who uses his employer’s confidential information are abrogated when the legislature enacts the Uniform Trade Secret Act.  Nevada has codified both the Nevada Uniform Trade Secret Act (“NUTSA”), and the idea that common law claims are displaced, in NRS 600A.090:

1. Except as otherwise provided in subsection 2, this chapter displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret.

2. This chapter does not affect:

(a)        Contractual remedies, whether or not based upon misappropriation of a trade secret;

(b)        Other civil remedies that are not based upon misappropriation of a trade secret; or

(c)       Except as otherwise provided in NRS 600A.035, criminal sanctions, whether or not based upon misappropriation of a trade secret.

(Emphasis added).  By its very language, then, common law torts “conflict” with the statute and are therefore displaced by it.  The Nevada Supreme Court has held that this statutory language is plain and unambiguous.[1]

A Question of Statutory Interpretation?

All questions of statutory construction must start with the language of the statute itself.[2]  In other words, the Court must begin its inquiry with the statute’s plain language.[3]  The Court may not look beyond the statute’s language if it is clear and unambiguous on its face.[4]  Stated another way, in circumstances where the statute’s language is plain, there is no room for constructive gymnastics, and the court is not permitted to search for meaning beyond the statute itself.[5]

NRS 600A.090 is Unambiguous. Or is it?

Courts must not render any part of the statute meaningless, and must not read the statute’s language so as to produce absurd or unreasonable results.[6]  They must consider “the policy and spirit of the law and will seek to avoid an interpretation that leads to an absurd result.”[7]  In fact, “The meaning of words used in a statute may be sought by examining the context and by considering the reason or spirit of the law or the causes which induced the legislature to enact it.  The entire subject matter and the policy of the law may also be involved to aid in its interpretation, and it should always be construed so as to avoid absurd results.”[8]  Finally, the Courts must conform their decisions to reason and the public policy behind the statute.[9]

The Nevada Supreme Court considered the application of NRS 600A.090 sua sponte in Frantz v. Johnson.  The court said ‘[t]he plain language of NRS 600A.090 precludes a plaintiff from bringing a tort or restitutionary action ‘based upon’ misappropriation of a trade secret beyond that provided by the UTSA.”[10]  As the court determined, the statute contains plain language; a court may not look past the “plain” language on the face of the statute.  That plain language shows that common law claims are in “conflict” with the statute and are therefore displaced, or abrogated, by the statutory scheme.

Courts must enforce the statute as written, displacing all common law torts to the extent they are based on the same nexus of facts.  To displace means to “crowd out” or “to take the place of.”[11]  The UTSA was written to “codify all the various common law remedies for theft of ideas,”[12] not to add one more remedy on top of already existing common law remedies.  In fact, the weight of authority among courts that have considered preemption, consider its “history, purpose, and interpretation of the statutory scheme” to preclude the ability to simultaneously maintain common law torts and an UTSA claim based on the same facts.[13]

Allowing a common law claim for unauthorized use of trade secrets alongside a NUTSA claim would “undermine the uniformity and clarity that motivated the creation and passage of the [UTSA].”[14]  In fact, the entire purpose of preemption is to preserve a single tort action for any and all misappropriation of trade secrets as defined under the NUTSA, thus eliminating all other tort causes of action founded on that misappropriation even if that use does not rise to the level sufficient to qualify for a NUTSA claim.[15]  NUTSA created a system in which information is either a protected trade secret covered by NUTSA, or it is unprotected general knowledge.[16]  Therefore, a majority of courts agree that common law claims are preempted when they are based solely on or to the extent they are based on alleged misappropriated trade secrets.[17]

In an unpublished opinion, the Supreme Court stated, the “statute explicitly provides that it does not affect other civil remedies that are not based on misappropriation.”[18]  Other Courts, including the U.S. District Court for Nevada,[19] have held that common law claims may be tried simultaneously with a NUTSA claim under Rule 8’s alternative pleading allowance.[20]  The court reasoned, “[e]ven if any of the above claims are duplicative of the misappropriation of trade secret claims and therefore preempted by the Nevada Unfair (sic) Trade Secrets Act, eTrippid is entitled to plead the claims in the alternative under Rule 8.”[21]

The Frantz Court calls those common law claims “explicitly excluded by the statute, as they all relate[] to a misappropriation of a trade secret.”[22]  While the Frantz court did allow for the possibility that a common law claim might be brought in the same suit, it only recognized that was possible where the facts “do not depend on the information at issue being deemed a trade secret, and thus are not precluded by the UTSA.”[23]

[1] Frantz v. Johnson, 116 Nev. 455, 464-65, 999 P.2d 352, 357 (2000) (emphasis added).  The U.S. District Court for Nevada has expressly followed this holding in Menalco v. Buchan, 2010 WL 428911 (D. Nev. 2010); Montgomery v. eTreppid Tech., LLC, 2008 WL 942524 (D. Nev. 2008); Custom Teleconnect, Inc. v. Int’l Tele-Services, Inc., 254 F.Supp.2d 1173 (D. Nev. 2003).

[2] See 2A Norman J. Singer & J.D. Shambie Singer, Statutes and Statutory Construction § 47:1, at 274–75 (7th ed. 2007) (“The starting point in statutory construction is to read and examine the text of the act and draw inferences concerning the meaning from its composition and structure.” (footnote omitted)) – as quoted by In re Nevada State Eng’r Ruling No. 5823, 128 Nev. Adv. Op. 22, __ P.3d __, 2012 WL 1949859, May 31, 2012 (2012).

[3] Arguello v. Sunset Station, Inc., 127 Nev. ___, 252 P.3d 206, 209 (2011).

[4] See Washoe Med. Ctr. v. Second Jud. Dist. Ct. ex rel. Washoe, 122 Nev. 1298, 1302, 148 P.3d 790, 792-793 (2006).  See also Valdez v. Emp’rs Ins. Co. of Nev., 123 Nev. 170, 162 P.3d 148 (2007);  Hobbs v. Nev., 127 Nev. Adv. Op. 18, 251 P.3d 177, 179 (2011); Pro-Max Corp. v. Feenstra, 117 Nev. 90, 95, 16 P.3d 1074, 1078 (2001).

[5] See Pro-Max Corp. v. Feenstra, 117 Nev. 90, 95, 16 P.3d 1074 1078 (2001).

[6] Leven v. Frye, 123 Nev. 399, 405, 168 P.3d 712, 716 (2007).

[7] Id. (quoting CityPlan Dev. v. State Labor Comm’r, 121 Nev. 419, 435, 117 P.3d 182, 192 (2005)).

[8] Welfare Division of State Dept. of Health, Welfare and Rehabilitation v. Washoe County Welfare Dept., 88 Nev. 635, 637 (1972); Ex parte Siebenhauer, 14 Nev. 365, 368 (1879); Western Pacific R.R. v. State, 69 Nev. 66, 69 (1952).

[9] Great Basin Water Network v. State Eng’r, 126 Nev. ___, ___, 234 P.3d 912, 918 (2010).

[10] 116 Nev. 455, 464-65, 999 P.2d 352, 357 (2000) (emphasis added).  The U.S. District Court for Nevada has expressly followed this holding in Menalco v. Buchan, 2010 WL 428911 (D. Nev. 2010); Montgomery v. eTreppid Tech., LLC, 2008 WL 942524 (D. Nev. 2008); Custom Teleconnect, Inc. v. Int’l Tele-Services, Inc., 254 F.Supp.2d 1173 (D. Nev. 2003).

[11] Black’s Law Dictionary, 423 (5th ed. 1979).

[12] Thomas & Betts Corp. v. Panduit Corp., 108 F.Supp.2d 968, 971 (N.D. Ill. 2000) (quotation omitted).

[13] Mortgage Specialists, Inc. v. Davey, 153 N.H. 764, 766, 904 A.2d 652, 663 (2006).  Since this is a “uniform” act, case law from sister jurisdictions should be considered as persuasive authority to the extent they are interpreting the same section.

[14] Id.; quoting Burbank Grease Serv., LLC v. Sokolowski, 278 Wis.2d 698, 693 N.W.2d 89 (Ct. App. 2005).

[15] Id.; Mattel, Inc. v. MGA Entm’t, Inc., 782 F.Supp.2d 911 (C.D. Cal. 2011); see also Miami Valley Mobile Health Srvc., Inc. v. Examone Worldwide, Inc., 2012 WL 441148 *13 (S.D. Ohio 2012).

[16] Id. quoting Unikel, Bridging the “Trade Secret” Gap: “Confidential Information” not Rising to the Level of Trade Secrets, 29 Loy. U. Chi. L.J. 841, 867-68 (1998).

[17] Id. 904 A.2d at 665 (citations omitted).

[18] Allegiant Air, LLC v. AAMG Mktg. Grp., LLC, No. 64182, 2015 WL 6709144, at *2 (Nev. Oct. 29, 2015).

[19] Montgomery v. eTreppid Tech., LLC, 2008 WL 942524 *3 (D. Nev. 2008).

[20] Newmark Grp., Inc. v. Avison Young (Canada) Inc., No. 215CV00531RFBGWF, 2019 WL 575476, at *10 (D. Nev. Jan. 7, 2019), report and recommendation adopted sub nom. BGC Partners, Inc. v. Avison Young (Canada), Inc., No. 215CV00531RFBGWF, 2019 WL 570724 (D. Nev. Feb. 11, 2019) (“Given the clear conflict among other jurisdictions and some indication in Frantz that the Nevada Supreme Court may adopt the plain language interpretation, however, Plaintiffs should be permitted to allege noncontractual claims for misappropriation of confidential information that does not constitute a trade secret.”)

[21] Id.

[22] 116 Nev. at 65, 999 P.2d at 357-58.

[23] Id., n.3.